In its cover article last week, The Economist (a British publication), suggested there is not enough competition among American companies. It pointed out:

“Aggregate domestic profits are at near-record levels relative to GDP… High profits might be a sign of brilliant innovations or wise long-term investments were it not for the fact that they are also suspiciously persistent. A very profitable American firm has an 80 percent chance of being that way 10 years later. In the 1990s the odds were only about 50 percent.”

At the end of last week, U.S. headlines indicated concern about declining corporate profits:

* Consumers prop up U.S. economy, but profits under pressure* U.S. Fourth-Quarter GDP Revised Up to 1.4% Growth but Corporate Profits Fall* Corporate profits fall in 2015 for first time since Great Recession* U.S. Corporate Profits Fall 8.1% in 4th Quarter

So, are U.S. companies experiencing record profits or are they in trouble?

Last week’s press release from the Bureau of Economic Analysis indicated corporate profits (after inventory valuation and capital consumption adjustments) declined from the third quarter of 2015 to the fourth quarter of 2015; hence, the headlines.

However, a one-quarter decline doesn’t provide a complete picture of the health of corporate America. As CFO.com pointed out, over the full year, corporate profits were up 3.3 percent year-to-year.

Trading Economics offered additional context. From 1950 through 2015, U.S. corporate profits averaged about $395 billion annually. Profits hit a record low for that period, $14 billion, during the first quarter of 1951. Profits rose to an all-time high of about $1.64 trillion during the third quarter of 2014.

IF YOU COULD LIVE ANYWHERE, WHERE WOULD YOU LIVE? If cities are your cup of tea, then here is some good news. The 2016 Worldwide Cost of Living Report compares the prices of 160 products and services – from food and drink to domestic care and private schools – in cities around the world. It found the cost-of-living in many cities fell during 2015 thanks to lower commodity prices, weakening currencies, and geopolitical unrest.

Be warned: a lower cost-of-living doesn’t mean a city offers good value. Take Zurich, for instance. Remember the uproar when the Swiss unpegged their currency early in 2015? The Swiss franc realized double-digit gains, the Swiss stock market swooned, and the Swiss people went shopping in neighboring countries. Well, the cost of living in Zurich fell from September 2014 to September 2015, but the decline wasn’t proportionate to declines elsewhere in Europe, and Zurich currently reigns as Europe’s most expensive city.

In September 2015, the most and least expensive cities in the world were:

Cities in the United States didn’t fare well, either. A strong U.S. dollar helped push all 16 of the U.S. cities that were in the survey up at least 15 places. New York and Los Angeles both rank among the 10 most expensive cities in the world.

Weekly Focus – Think About It

“The first step in the evolution of ethics is a sense of solidarity with other human beings.” –Albert Schweitzer, Winner of the Nobel Peace Prize

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* Past performance does not guarantee future results. Investing involves risk, including loss of principal.* You cannot invest directly in an index.* Consult your financial professional before making any investment decision.* Stock investing involves risk including loss of principal.

There is ongoing debate about whether markets behave in rational ways.

The efficient market hypothesis suggests it’s impossible to outperform the stock market because current share prices reflect all relevant information. In other words, stocks should always trade at fair value and it should be impossible to invest in a stock that is overpriced or underpriced.

The Economist reported there are two issues efficient market theorists have trouble explaining. The first is market bubbles, “where entire markets get out of whack with traditional valuation measures and then collapse.” The other is pricing anomalies. For instance, value stocks are inexpensive relative to their asset values and tend to outperform over the long term. In a perfect market, pricing anomalies shouldn’t occur.

During the past few weeks, U.S. stock markets have recovered from losses suffered earlier in the year and moved into positive territory for 2016. The shift into positive territory has some suggesting markets may not be correctly priced, but there is disagreement about whether it currently is overvalued or undervalued.

According to Barron’s, the recent strong performance of U.S. stock markets hasn’t been inspired by sound decisions and rational economic behavior. “The market’s valuation, at 17 times consensus analyst earnings-per-share estimates for 2016, looks stretched again, given that easy monetary policy and rising oil prices – not earnings growth – are responsible.”

Wharton Professor of Finance Jeremy Siegel disagreed. “On an absolute basis [the stock market is] slightly more highly valued than average but relative to interest rates, which are extremely low, it is actually undervalued in my opinion.”

Investors who believe markets perform well most of the time, but not all of the time, may want to take opportunities like these to look for companies whose shares may be mispriced, as well.

HERE’S A MILESTONE YOU DON’T REACH UNTIL YOUR SEVENTIES. The major milestones of older Americans are not attended with the same sense of wonder that accompanies the major milestones of younger Americans. Sure, registering for Social Security benefits and signing up for Medicare are rites of passage, but they don’t hold a candle to earning your driver’s license, receiving your first kiss, winning your first promotion, or dancing at your wedding.

If you have retirement accounts when you become a septuagenarian, then you’ll encounter a milestone the Internal Revenue Service (IRS) strongly encourages you to remember. Beginning April 1 of the year following the year in which you reach age 70½, you must begin taking required minimum distributions (RMDs) from most of your retirement accounts. Forbes offered this list:

There currently are no RMDs for Roth IRAs, unless the accounts were inherited.

If you have more than one qualifying retirement account, then a separate RMD must be calculated for each account. If you want to withdraw a portion of each account, you can, but it may prove simpler to take the entire amount due from a single account. Once you start, you must take RMDs by December 31 every year. If you don’t, you’ll owe some hefty penalty taxes.

The IRS offers some instructions for calculating the RMD due. “The required minimum distribution for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’ “Uniform Lifetime Table.” A separate table is used if the sole beneficiary is the owner’s spouse who is ten or more years younger than the owner.”

If you would prefer to have some help figuring out the correct amount when RMDs are due, contact your financial professional.

Weekly Focus – Think About It

“It wasn’t by accident that the Gettysburg address was so short. The laws of prose writing are as immutable as those of flight, of mathematics, of physics.” –Ernest Hemingway, American writer

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* Past performance does not guarantee future results. Investing involves risk, including loss of principal.* You cannot invest directly in an index.* Consult your financial professional before making any investment decision.* Stock investing involves risk including loss of principal.

As the second of eight Federal Open Market Committee (FOMC) meetings of 2016 approaches later this week, the market and the Federal Reserve (Fed) remain deeply divided over the timing and pace of Fed rate hikes.

The European Central Bank (ECB) was singing a tune that invigorated financial markets last week. The Wall Street Journal explained:

“The fresh measures included cuts to all three of the ECB’s main interest rates, €20 billion a month of additional bond purchases atop the ECB’s current €60 billion ($67 billion) program, and an expansion of its quantitative easing program to highly rated corporate bonds – all more aggressive steps than analysts had anticipated. The central bank also announced a series of ultracheap four-year loans to banks, some of which could be paid to borrow from the ECB.”

Most national indices in Europe gained ground last week. The Financial Times Stock Exchange Milano Italia Borsa (FTSE MIB), which measures the performance of the 40 most-traded stocks on the Italian national stock exchange, was up almost 4 percent. Spain’s Indice Bursatil Español Index (IBEX 35), which is comprised of the most liquid stocks trading on the Spanish continuous market, gained more than 3 percent. Major markets in the United States moved higher, as well.

Barron’s offered a word of caution, “Investors shouldn’t get too comfortable when it seems that oil moves and central-bank maneuvers are the main reason stocks go up or down, not earnings and economic growth.”

HERE’S SOME GOOD NEWS: Healthcare spending is expected to increase more slowly during 2016! It’s projected to grow by 6.5 percent this year, according to a report from PWC. That’s still a lot faster than inflation. The Economist projects overall consumer prices in the United States will increase by 1.2 percent this year.

The report suggested several factors are contributing to lower healthcare spending, including:

* The Affordable Care Act’s Cadillac Tax. PWC reported the tax “…is motivating businesses to enact high cost-sharing. Their workers are already responding to the higher deductibles by scrutinizing what services are necessary and which are not…cost sharing can backfire if the employee foregoes preventative care and faces years of chronic illness.” Twenty-five percent of employers offer only high-deductible healthcare plans for employees.* Virtual healthcare. Telemedicine appears to be the next big thing in medicine. Doctors making house calls using real-time audio and video is the gold standard for service, according to the Modern Medicine Network. Remote patient monitoring, pre-recorded videos, and computer-assisted or message-based communications also are being offered.* New health advisors. A new variety of healthcare company is making information about facilities, providers, services, and pricing more accessible. In some cases, financial incentives encourage employees to seek treatment at a preferred facility.

These gains are more than offset by factors that are pushing healthcare spending higher, including:

* High-cost specialty drugs.PWC reported specialty drugs are becoming a focus for the pharmaceutical industry. “With 700 specialty products currently in development, these investments will soon surpass traditional drug investments…According to a recent Express Scripts report, total national prescription spending increased 13.1 percent last year to about $980 per person.”* Cyber security investments. Healthcare organizations are spending heavily on cyber security to protect patients from data breaches. The cost of a breach is about $200 per patient record. The cost of security is about $8 per patient record.

It’s critical to factor healthcare spending into retirement plans. In 2015, the Employee Benefits Research Institute (EBRI) found a 65-year-old man needs $124,000 in savings and a 65-year-old woman needs $140,000 if each wants a 90 percent chance of having enough money saved to cover healthcare expenses in retirement. EBRI’s analysis did not include the savings needed to cover long-term care expenses.

Weekly Focus – Think About It

“Yesterday is not ours to recover, but tomorrow is ours to win or lose.” –Lyndon B. Johnson, Former U.S. President

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* Past performance does not guarantee future results. Investing involves risk, including loss of principal.* You cannot invest directly in an index.* Consult your financial professional before making any investment decision.* Stock investing involves risk including loss of principal.